Inflation broke Americans' holiday budget – here's how long it will take to pay off debt

Most Americans are experiencing a holiday spending hangover that could take months to recover from, a recent survey said.

Seventy-four percent of consumers said inflation had a more significant impact than anticipated on their holiday spending budgets and 45% overspent, according to WalletHub’s recent survey. Additionally, 1 in 4 Americans said they will need 6 to 12 months to pay off holiday debt, and most people will need at least one to three months to pay what they owe.

“People generally expect to spend a lot during the holidays, but the stakes were higher this year due to inflation and record high interest rates,” WalletHub said in a statement. “The fact that so many carry holiday debt well into the New Year means the total cost of holiday purchases will continue to grow for the months as interest accrues.”

Consumers got some reprieve on holiday expenses, with gas prices decreasing close to an average of $3.00 per gallon for most of the season. The decline in gas prices has helped pull down overall inflation and improved the outlook on the Federal Reserve, possibly lowering interest rates this year. 

That’s good news for those credit card holders who may take longer to pay off their holiday spending balances. The average credit card interest rate is currently at a high of 22.75% for existing accounts with finance charges, according to WalletHub.

If you’re worried about the state of the economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and get your questions answered.

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Holiday spending pushes some to borrow more

Some consumers are increasingly relying on personal loans or asking lenders for higher credit card limits to cover expenses and spending during the holiday season, a recent VantageScore analysis said.

The increased reliance on these higher interest rate accounts could put some consumers at risk of missing their monthly payments in the coming months. Late payments are already rising across all VantageScore credit segments, signaling that many Americans may feel more financially stretched than they were a year ago. Moreover, month-over-month early-stage delinquencies continued to surpass pre-pandemic levels.  

Despite signs of struggling, Americans continued to lean on credit cards, with balances increasing 9% from a year ago. Americans now owe $1.08 trillion on their credit cards after racking up a collective $48 billion in new spending during the third quarter of 2023, according to a recent report on household debt from the Federal Reserve Bank of New York.

“Consumers appeared to exhibit confidence during the holiday shopping season, and with credit card interest rates at historic highs, the impact on balances is evident,” VantageScore said. “Credit card balances rose more rapidly than the rate of annualized inflation, as well as more rapidly than the rate of annualized wage gains.”

If you’re concerned about high-interest debt, you could consider paying it off with a personal loan at a lower interest rate, which could cut your monthly payments. Visit Credible to get your personalized rate in minutes.

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Get ahead on finances by doing these three things

Americans are counteracting the challenges of higher living costs by budgeting, cutting back on expenses and paying down debt, according to Bread Financial’s survey.

Forty-eight percent of baby boomers planned to trim spending, and 39% said they would reduce debt to meet their financial goals in 2024. Twenty-nine percent of millennials and 30% of Gen Z planned to save for a significant purchase like a home or car, while 40% of millennials and 35% of Gen Z are focused on improving their credit score. 

“The new year is a perfect time for consumers to take stock of their financial goals and plan for the next year,” Bread Financial SVP and chief marketing officer Nick Antonelli said. “This research shows the importance of focusing on financial wellness and prioritizing a strong foundation in the coming year.”

If you’re struggling with making your monthly payments and managing your budget, you could consider paying off high-interest debt such as credit cards with a personal loan. Visit Credible to speak with a personal loan expert and get your questions answered.

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